Those concerned that Silicon Valley is inside a tech bubble fit to burst, have no fear – because according to true disruptive thinking, the opposite is true.
Speaking at a conference on Wednesday, tech investor and entrepreneur Marc Andreessen batted back a question from Fortune editor Alan Murray about the over-the-top …

Plus 401k and other retirements schemes we're "encouraged" to save money for the promise of future returns (but no guarantee). Few months back I heard of the same practice being proposed for China to prop their collapsing stock market. If you can't attract investors, legislate them (and the same for the model of health insurance that works mostly to the benefit of insurers).

same in the UK

In the UK, everyone working for a medium-sized or larger company is auto-enrolled in a (money-purchase aka defined contributions) pension scheme by law. Where will that money be invested? Government bonds, land and the stock market. It's a win-win! What can go wrong?

Well, as long as there are no great shocks it's not a bad way to do retirement planning and keep the cash moving around the economy, but from an ownership point of view, it could tip us further into un-checked Boards of Directors territory. Everyone owns the companies/land/government debt, but because it's all done through pension funds, which of them will realistically exercise any authority at shareholder meetings? I know this has been going on since fund managers have existed, but the scale keeps ramping up and capital is being focused into funds managed by people who don't own them and don't want to pay enough in fees to get someone to act in their interests at shareholder meetings.

Perhaps one of the reasons big companies aren't innovating is that there's only a limited scope for profitable innovation at any particular time.

The legitimate options for making money from innovations seem to be providing a new service that can be charged for at a profitable level or advertising. If a business like Uber can't turn a profit the first of those seems to offer very little. So is this what the internet has come down to - conning advertisers that its worth paying good money to piss off potential customers? Or as a medium for criminal activity?

The story barely touched on one element of the current "valuations", that the investments are structured more like debt than equity.

Term sheets continue to evolve. A dozen years ago they were merely one-sided drafts that are sometimes negotiated to something more balanced. Now they are absurdly unbalanced in exchange for extreme valuations. A VC might be investing $10M for 1% of a company's authorized shared (a "$1B valuation"), but the term sheet includes a payback provision with high interest rates, strong limits on issuing those authorized shared (or simply control of the board's committee), warrants, anti-dilution provisions for their shares, and every other clause they could think of.

It's perfectly reasonable that a VC should demand 4x preference shares that guarantee their money is paid back 4x before any of the founders or employees, that made the company a success, see anything.

It's totally different from a loan shark demanding 400% interest - totally different

In a Bust

Probably because the fundamentals of these companies don't match some of the insane market "valuations". If your thing isn't worth what it's valued at it isn't going to sell to anybody sensible.

We know how to value companies and woe betide any company who thinks they know better. Famous examples, HP's Autonomy acquisition where some smartypants decided they could outdo the fundamental-based market valuation, cue disaster and massive write-downs.

Or my personal favourite: Twitter. Here's a company that looses money and has never ever shown an investor how it intends to actually turn a profit and the insanity of talking about how many extra users they do or don't add in a quarter when there's no system that can turn those users into money - or at least enough of it.

We're not in a bust we're in a bubble or a lot of these companies that pull this nonsense would be seeking various forms of bankruptcy protection and pension funds would be left surveying the damage. The key question is if we can stay in a bubble and the answer is yes as long as nobody asks the obvious question which is "where do these valuations even come from?".

Re: where do these valuations even come from?

Directly from Unicorn Land, where everyone has money to burn and nothing can ever go wrong.

I salute M. Andreeson on one point : at least he is honest enought to clue us in on the true basis of his evaluation by using the terms Unicorns and Angels. Given that nobody has seen either, it is clear that he is spouting bull and just hoping to take in a maximum number of suckers before his latest bet falls on its face.

Re: In a Bust

Re: In a Bust - <Cough > Facebook.

I really think Facebook's actual plan is to get taken over by the US government as the most comprehensive surveillance system ever invented, which doesn't even need all those operatives spying on you - like the Stasi, they get everybody to spy on other people voluntarily.

Re: In a Bust - <Cough > Facebook.

Who say "Grin and Brin" ( or whatever they're called ) weren't groomed for the job from birth? They might have had the right connections made available by those high up in government and finance, then encouraged to get Google up and running...

Re: In a Bust - <Cough > Facebook.

Re: In a Bust

Or my personal favourite: Twitter. Here's a company that looses money and has never ever shown an investor how it intends to actually turn a profit and the insanity of talking about how many extra users they do or don't add in a quarter when there's no system that can turn those users into money - or at least enough of it.

I thought everyone on the planet already had an account, then decided never to use it.

The entire basket of unicorns is worth like half of Microsoft.

So Microsoft is over-valued. I don't think that's controversial. They only have three products: Windows, Office and ActiveDirectory. Based on the last decade's performance, I'd say the company is dead on the inside and only appears to live on because the rest of the world can't switch away from their three products overnight.

Re: The entire basket of unicorns is worth like half of Microsoft.

> They only have three products: Windows, Office and ActiveDirectory.

Don't forget the Surface Book. Great specs, 'cept for the crappy OS and lingering driver issues MS can't seem to fix. And the price for a fully spec'd one is... well, actually less than a similarly spec'd 13" MBP. Wonder how well it runs Linux or OSX?

"good thing for the country," "bad thing for.. people built around making billion-dollar deal."

If A you're hoping you can unload your shares on someone who wants them more than you do. But if they are a good company why would you want to, unless you're looking at some kind of Ponzi scheme? If B again why would you want to?

These companies seem to be talking P/E ratios in centuries (if they talk about them at all).

There core assets are a)Bunch of devs. b)Bunch of servers c)Bunch of BS development plans.

How big a server farm do you need to be worth $40Bn in assets?

You can't help think that if REL had some VC types around BAe would have put in rather more than £20m for rather less than 20% of the company.

Abused puppy capitalism

'most public tech companies right now have shareholder bases that do not want them to do new things. And instead want them to give back cash.'

As a tech shareholder I'm personally pretty tired of tech firms giving back cash. On the risk aversion scale, the managers of public companies are down there with nematodes and abused puppies. Unfortunately, at the other end of this scale you have wolves and parasitic worms.

Uber caught everyone by surprise

>Uber is worth nowhere near its $40 billion current valuation, but its technology is undeniably brilliant – and getting better thanks to the engineers working tirelessly on it.

The tech can be brilliant, in multiple countries, however, they have specific laws covering transport services. Requirements must be met and a person wanting to transport people in a car for a fee will have to pay for the right to do so in many countries ... Uber France is dead or about to be slain, and that is just an example.

Car pooling services where you pay a fee for the trip are next to be investigated.

Note that I have no opinion on the merit of such laws, just saying ... taxi service providers across the globe who pay humongous amounts of establishment fees etc are pushing hard for the laws to be applied to phoneApp taxi services as well.

Re: Uber's technology is undeniably brilliant???

It is straightforward, but it's also "on an internet" and, even better, "on your web-phone", so the valuation gets bonus multipliers.

Saying that, it's a simple idea that wrecks the business model of established players, hence the fuss. Established, regulated players are insisting that the newcomers play by their rules, rather than question whether the rules are still relevant. Personally, if a driver is qualified, and the car is insured according to local laws, then does it matter if a cab is black or not - especially if there's a simple way to demonstrate that the route it took is within reason for the trip requested and not routed in a roundabout way to bump up the fees.

But Uber may well go the same way as the apps (e.g. Peerby is just one of many) that let you know someone had a power-drill to borrow in the same neighbourhood, so you didn't need to go out and actually buy one (apparently the average power drill is used for 12 minutes in its lifetime, so there should be plenty knocking around going spare). If too many jump on the Uber bandwagon, then (a) there won't be enough to go round for anyone to make a living from it, and (b) the streets will be so congested with Uber drivers no-one will get anywhere. But you could take the viewpoint that it will settle down eventually, via the foxes & rabbits analogy.

Re: Uber's technology is undeniably brilliant???

Nothing. On the front-end it's an app for calling a cab. On the back-end, it's a cab dispatcher.

In today's Silicon Valley, this is considered brilliant, disruptive, innovative, take your pick for a hype buzzword, and it's worth USD $40 BEELION. The company has never made any money.

When I was in college and then grad school, the college towns where I lived each had a cab company. I could call a cab from any phone, even from a public phone. I would talk to a dispatcher, and then a cab would show up. Nobody considered that technology innovative or disruptive or brilliant. Those college town cab companies had to make some money to stay in business, but they weren't valued at USD $40 BEELION.

"it was the realization that with the internet you could reach anyone on the planet that caused people to lose their minds. Companies conflated possibility with reality."

"but this time it is driven by the combination of the internet and smartphones. Not only can you get to billions of people, the optimists excitedly tells themselves, but you can get to them all the time on a device they carry around with them"

I don't think the two are really comparable in that sense. In the former, saw the possibility of reaching billions of people but never managed to actually achieve it. In the latter, the possibility of reaching billions of people on devices they carry with them actually has been achieved. The problem is not that the dream of reaching so many people still fails in reality, but simply that reaching lots of people has never been enough in and of itself. The money was never there either now or in the previous bubble, but last time everyone fell at the first hurdle so they didn't even notice the second one that we've now reached.